# Acquisition of Trucks Acc 550 E 10-3

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Name Section Date Exercise 10-3 (Acquisition Costs of Trucks) (Acquisition Costs of Trucks) Shabbona Corporation E10-3 (Acquisition Costs of Trucks) Shabbona Corporation operates a retail computer store. To improve delivery services to customers, the company purchases four new trucks on April 1, 2012. The terms of acquisition for each truck are described below. 1-Truck #1 has a list price of \$15,000 and is acquired for a cash payment of \$13,900 2-Truck #2 has a list price of \$20,000 and is acquired for a down payment of \$2,000 cash and a zerointerest-bearing note with a face amount of \$18,000. The note is due April 1, 2013. Shabbona would normally have to pay interest at a rate of 10% for such a borrowing, and the dealership has an incremental borrowing rate of 8%. ** Truck #3 has a list price of \$16,000. It is acquired in exchange for a computer system that Shabbona carries in inventory. The computer system cost \$12,000 and is normally sold by Shabbona for \$15,200. Shabbona uses a perpetual inventory system. 4. Truck #4 has a list price of \$14,000. It is acquired in exchange for 1,000 shares of common stock in Shabbona Corporation. The stock has a par value per share of \$10 and a market price of \$13 per share Shabbona Account Titles 1. 2. Debit Truck # 1 Cash Truck #2 Discount on Notes Payable \$ Credit 13,900.00 \$ \$ \$ ** \$ \$ 13,900.00 2,000.00 18,000.00 18,364.00 1,636.00 Cash Notes Payable PV of \$18000 @ 10% for 1 year (PV of Single sum 10%, 1 year \$14,000) = \$18,000*.90909= \$16363.62 rnd \$16,364 16,634 + \$2,000= \$18,364 ** 3. 4. * Truck # 3 COGS Inventory Sales \$ \$ 15,200.00 12,000.00 * \$ \$ Truck #4 \$ 13,000.00 Common Stock Paid in Capital in Excess of par (1000 shares * \$13 = \$13,000 ; \$13000 less \$10,000 par val =\$3,000) fair price; retail price